Between Law and Social Norms, Evolution of Global Governance

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Between Law and Social Norms:The Evolution of GlobalGovernance

GRALF-PETER CALLIESS AND MORITZ RENNER

Abstract. It is commonplace that economic globalization poses new challenges tolegal theory. But instead of responding to these challenges, legal scholars often getcaught up in heated yet purely abstract discussions of positivist and legal pluralistconceptions of the law. Meanwhile, economics-based theories such as Law andSocial Norms have much less difficulty in analysing the newly arising forms ofprivate and hybrid governance without government from a functional perspec-tive. While legal theory has much to learn from these approaches, we argue thatthey fail in one crucial point: They cannot uphold the analytical distinction betweenlaw and non-law. The reasons for this shortcoming are theory-immanent in that theeconomic theories focus on efficiency and their actor-based perspective are neces-sarily blind to laws own rationality. We therefore propose to further developthose functional approaches to the study of global governance by complementingthem with elements from Niklas Luhmanns systems theory of law. This willprovide us with a conceptual framework for analyzing the workings of globalgovernance regimes without ignoring their potential for legalisation and con-stitutionalisation. As we will show in three concrete examples (Corporate Social

Responsibility, lex mercatoria, and internet regulation) we can thus describe theevolution of new forms of legal regulation beyond the nation-state. This will alsoallow us to draw some preliminary conclusions on the role of law in the context ofglobalization and, at the same time, show the direction for further empiricalresearch.

1. Introduction

The study of globalization is a decidedly interdisciplinary endeavor.Especially in current discussions of global governanceunderstood as the

provision of good order and workable arrangements (Williamson 2005, 1)for cross-border situationsthe nineteenth century division of academicdisciplines is beginning to blur (Dezalay and Garth 2002, 311). Jurispru-dence, however, seems to adapt to this situation only hesitantly (Twining2000, 50). The legalization of global governance, for example, is discussed

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by political scientists rather than academic lawyers (Abbott et al. 2000).Globalizations challenges, however, go to the very core of legal discipline.On the one hand, it seems that in the ambit of global governance there is a

trend towards non-legal forms of regulation. It is evidenced e.g., by the riseof Alternative Dispute Resolution (ADR) (Calliess 2006) and the emergenceof new trust-based regulation models in e-commerce contexts (Calliess 2008).On the other hand, however, we can witness the evolution of supposedlylegal and semi-legal forms of regulation beyond the nation-state which areoften referred to as private regimes (Bernstein 1992) or hybrid regimes(Teubner 2002). While both these developments are readily conceptualisedby economics- and political science-based approaches that are labelled asgovernance without government (Rosenau and Czempiel 1992) or eco-

nomic governance (Dixit 2008), legal theory has largely failed to grasp theintricate relationship between law and social norms in the context of globalgovernance regimes that might even necessitate a reconsideration of theconcept of law itself (Cotterrell 2008).

In the first part of this paper (sec. 2), we approach this problem byproposing a functional analysis of the role of law that allows us toeffectively contrast legal with non-legal forms of regulation. To this end wewill draw upon concepts from the economics-based theory of Law andSocial Norms which explains how both law and social norms contribute

to stabilising the behaviour of economic actors. We will argue, however,that this actor-based approach fails to come up with a sufficiently selectivedefinition of the function of law. Therefore, we will complement it with acommunication-based approach building upon Luhmanns theory of socialsystems. On this basis we will introduce a distinction between the perfor-mance and the function of legal systems that allows for a more accurateanalysis of the role of law in its relation to society as a whole.

In the second part of our paper, we will test the analytical frameworkdeveloped in the first part by trying to conceptualize the emergence of

global governance regimes in terms of legal theory (sec. 3). To this endwe will, after laying out the basic preconditions for the evolution oflegal systems, briefly sketch three examples of global governanceregimes. We will then show how these regimes enter into a performancecompetition with both domestic and international law by providingdispute resolution and regulatory services. We will argue that gover-nance regimes develop into legal systems at the point where theyassume the function that law fulfils towards society as a whole: thestabilisation of normative expectations.

In our conclusion, we can then shed some light on the relation of law andsocial norms in the context of global governance (sec. 4). If our hypothesesthat (a) legal and non-legal governance mechanisms compete in terms ofdispute resolution and behavioural control, that (b) the social function of lawlies in the stabilisation of normative expectations and that (c) global

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governance regimes that take on this function can develop into legal systemshold true, then we will be able to point out both the differences and theinterrelatedness of legal and non-legal forms of regulation, of law and social

norms, on the global level from a legal theory perspective.

2. Law and Social Norms: A Functional Approach

The question what is law is the eternal question of legal theory (Hart1997). The positions in this debate are well-known and have changed onlylittle during the course of the twentieth century. The discussion is largelydominated by two strands of legal thought that can be subsumed underthe labels of legal positivism on the one hand and legal pluralism on

the other. The basic assumptions of legal positivism can be traced back toAustin and Weber and revolve around the idea that legal norms are backedby mechanisms of sanctioning (Austin 1995; Weber 1954). Most notably inKelsens writings these mechanisms are identified with state institutions,the very idea of law thus being inextricably linked to the concept of thenation-state (Kelsen 1945). These assumptions have always been chal-lenged by sociological approaches to the law that rely on the ground-breaking work of Eugen Ehrlich, which focused on the emergence of normsin different social contexts outside the legal system (Ehrlich 1913). During

the last decades, these ideas have been taken up by authors who rallyunder the flag of legal pluralism in order to overcome the jurisprudentialfixation on the nation-state and get an analytical grip on phenomena ofsocial ordering beyond or even without the nation-state (Teubner 1997;Schiff Berman 2007).

Both strands of legal theory, however, seem to have not much tocontribute to the interdisciplinary debate on global governance that ismuch less interested in abstract definitions of the concept of law than in theconcrete regulatory arrangements that emerge in transnational constella-

tions (Dixit 2004). In our view, therefore, the most pressing demand oncontemporary jurisprudence is to make legal concepts compatible withthose of the social sciences without at the same time losing sight of the veryown purpose of legal thinking, i.e., the normative analysis of legal struc-tures. This presupposes that legal theory, on the one hand, opens itself tothe methods and insights of the social sciences and, on the other hand,succeeds in integrating those into a normative theory of the law. As a stepin this direction, we will try to bring together elements for a theory ofsocial ordering from both economics and the sociological theory of law.

Borrowing from both Law and Economics and Systems Theory, we outlineelements for a functional analysis of different regulatory mechanisms thatwill allow us to better describe global governance regimes in their oscil-lation between law and social norms by identifying the potential overlapsof social science approaches with a genuinely jurisprudential perspective.

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2.1. Law and Social Norms

One of the most notable functional comparisons of law and social normsin the social sciences comes from economic theory. It was first elaborated

in the early 1990s in Ellicksons analysis of informal dispute resolutionbetween neighbours (Ellickson 1991). Building specifically on his ideas,Law and Social Norms as a school of thought tries to explain regularitiesin collective behavioural patterns in terms of economic analysis. In thiscontext, the function of both social and legal norms is seen in enablingco-operative behaviour, i.e., any behaviour that contributes to the resolu-tion of cooperation problems caused by uncertainty (Posner 2000a).Drawing on concepts from New Institutional Economics and Game Theory,Eric Posner, for example, uses the model of a cooperation game to

explain conformity in social behaviour (Posner 1998, 767). Posner tries toreconstruct aspects of social reality as a repeated prisoners dilemma (seeEllickson 1991, 164), i.e.,put very simplya situation where cooperativebehaviour will be rewarded with future payoffs by keeping the gamegoing while non-cooperative behaviour (cheating or free-riding) willbe rewarded with short-term benefits but at the same time will end thegame and thus foreclose the possibility of resolving the cooperationproblem at stake.

In economic terms, the basic problem is one of opportunism: (Boundedly

rational) economic actors tend to destro[y] part of the cooperation surplusto secure a larger share of it (Cooter 1996, 47).1 The fear of opportunisticbehaviour of their counterparts, however, might effectively prevent eco-nomic actors from entering into contractual relations and, more generallyspeaking, any kind of exchange process. Overcoming opportunism, there-fore, is crucial to the functioning of any market-based economy.

On this basis and taking into account an initial situation of incompleteinformation, Posner introduces a signalling model of economic interac-tion (Posner 2000b). Those players of the game that are willing to act

cooperatively, he argues, have an interest in signalling this attitude towardsother players by engaging in symbolic behaviour. The signalling is suc-cessful as long as the signal has the right cost structure to distinguishgood cooperators from bad cooperators, the most striking examplebeing the activity of gift-giving. Possible signals, i.e., social norms ascribinga meaning to a certain conduct, are introduced by public or private normentrepreneursi.e., the state as well as individuals or corporations.Thereby, norms are generated in a fundamentally heterarchical process:

Many peopleincluding politicians, academics, novelists, journalists, and othercultural playerscompete to be a successful norm entrepreneur [. . .]. They propose

1 Oliver E. Williamson defines opportunism as self-interest seeking with guile (Williamson1985, 47).




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signals; cooperators use the signal that seems most likely to create a separatingequilibrium. There will be conflict and confusion, but pooling around a singlesignal may emerge, with benefits redounding to the norm entrepreneur(s) whoproposed it. (Posner 1998, 774)2

This rather trivial model of social interaction can be further developed bydistinguishing different mechanisms of social control that provide forboth generation and enforcement of social norms. On the one hand, theeconomic and sociological literature stresses the importance of so-calledrelational norms, i.e., norms that arise from the bilateral interaction ofthe parties to a contract (second-party control mechanisms: Macaulay 1963;MacNeil 1980). On the other hand, it analyses informal (reputation-based)as well as formalised (organisational) third-party control mechanisms, e.g.,

arbitration or mediation proceedings under the auspices of a neutral thirdparty (Ellickson 1991, 131). Generally speaking, however, these modelsdefine as norms any type of behavioural control that enables cooperation.

This leads Law and Social Norms-influenced authors to emphasize theinterrelatedness or even interchangeability of legal and social norms. Notonly do social norms form the implicit basis of many commercial contracts(Bernstein 1993, 712): Often parties also rely on social sanctions ratherthan the state legal system when it comes to the enforcement of theirmutual commitments (Charny 1990, 391; Posner 2000c; Dixit 2004, 60). To

give an example, a party might terminate an ongoing business relationshipand, thus, invoke damage to the reputation of the other party (Dietz andNieswandt 2009). The role that law can play in this context is very limited:Its symbolic mechanisms will sometimes facilitate co-operation and some-times interfere with it (Posner 2000a, 148). And as the chances of winninga breach of contract suit are pretty much random (ibid., 161), there aregood reasons to stick with non-legal enforcement mechanisms.

The transaction cost-based approaches of New Institutional Economicsscholars such as Oliver E. Williamson further refine the analytical frame-

work for defining good order and workable arrangements (Williamson2005). They, too, start from the question of how to efficiently limit theopportunism of economic actors. The market, the firm, and hybrid gover-nance mechanisms are then compared under the aspect of their capabilityto adapt to unforeseen situations in a transaction cost-efficient way.Depending on the attributes of a specific transaction (asset specificity,uncertainty, frequency) certain governance mechanisms will prove moreefficient than others. Again, the theorys focus is on the (transaction cost)equivalence of different modes of economic governance. Accordingly,

various types of social, i.e., non-legal, norms are considered to be equally

2 A separating equilibrium is established when all the good types send the signal to matchup with each other and the bad types do not send the signal and either match up with eachother or not at all.




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efficient as (international and state) law when it comes to securing thecompliance of economic actors.

But what immediately springs in mind, from a jurisprudence perspec-

tive, is that in comparing legal and non-legal modes of governance all theeconomic approaches discussed here basically rely on the distinctionbetween public and private ordering. The difference between social normsand legal rules is attributed to the fact that the latter are made by publicauthorities, while the former are generated by private actors. Consequently,much like classical legal positivism, they argue that there can only be lawwhere individual/corporate behaviour is regulated by the nation-state(Ellickson 1991, 127). The very distinction between public and privateordering, however, has long become questionable not only in law (Cohen

1927, 8; Kelsen 1960, 268) but also in its neighbouring disciplines (Geuss2001). In the ambit of transnational governance it is even more difficult tobe upheldeven from a purely analytical point of view. For without thenation-state as an Archimedean point of reference, the public or privatestatus of regulators becomes fundamentally ambiguous. In the transna-tional arena, States, industry, and civil society often compete, intermingle,and work together in their regulatory efforts (Slaughter 2004; Zumbansen2006). All economic theory can tell us about these hybrid forms ofregulation is whether they are (economically) equivalent to state-sponsored

means of regulation. What they cannot tell us is whether these forms canbe considered as law or not.Yet this is a question that remains central to any jurisprudential

endeavor. Doing away with the distinction would not only mean foreclos-ing any normative perspective of constitutionalizing private governanceregimes (Teubner 2004), of subjecting the economic forces of globalizationto the rule of law. But also on an analytical level there is a strong case tobe made for upholding the law/non-law distinction. Is the dominant roleof law in society nothing more than an evolutionary anomaly of the

European nation-state as Niklas Luhmann (2004, 490) suggested in the1990s? Or does it survive in new forms by adapting its internal structuresto the processes of globalization as Gunther Teubner (1997) argues? Juris-prudence and the social sciences have to face these most pressing questionsand yet they are lacking an adequate analytical framework for empiricalresearch that, on the one hand, takes globalisations challenges to the lawseriously and, on the other hand, does not ignore that laws rationality isa rationality apart (Fried 1981, 58).

That leaves us with a mixed picture of the usefulness of economic

theories with a view to analyzing global governance regimes. On the onehand, they aptly explain how regulation of behaviour can work in theabsence of state law. On the other hand, they lack the analytical means todistinguish between the respective function of law and non-legal norms.Instead, they rely on the state-centred categories of public and private




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ordering that often seem under-complex in the face of an ongoing globali-sation of politics, the economyand the law.

2.2. Norms and the Legal System

The reason why Law and Social Norms and other economic theories oflaw fail to uphold the analytical distinction of law and non-legal formsof regulation is that they reduce law to its usefulness for the coordinationof economic actors (Hetcher 2002, 3656). From this point of view, law isjust a means, but not the only means, of securing commitment betweencommercial actors (Hadfield 2001, 43).

To overcome the shortcomings of these theories we suggest shifting thefocus from laws function for social actors to its function as a social systemof communication. On the basis of systems theory, we will assume that lawis a system of communications characterised by the binary code legal/illegal, and that this code is handled on the level of the second-orderobservations of the legal system (Luhmann 2004). We can then analyse theinteraction of this communicative system with different social sub-systemsas well as its interaction with society as a whole, i.e., the totality of allsocial communications. In the following paragraphs, we will show howthis definition of law plays out in the context of global governance regimesand how it can be reconciled with the functional approaches in economictheory described above.

In order to do so, following Luhmann, we shall distinguish betweenthe performance and the function of law in modern societies (ibid., 167).The function of law is given by reference to society as a whole, whereasperformance denotes the services that the legal system provides to otherfunctional subsystems of society like the economy, politics, and so on(Luhmann 1998, 7578).

2.2.1. Performance

The possible performances of law towards other social systems are mainlyconstituted by behavioural control and dispute resolution. At this pointthere is a considerable overlap of a systems theory approach and theconceptions of Law and Social Norms as discussed above. When anal-ysing law as providing dispute resolution services and a certain level ofbehavioural control, e.g., for the economic system, a plethora of functional

equivalents to law comes into mind. This means that the performances oflaw are not necessarily fulfilled by reference to the legal code. Instead, thebehaviour of economic actors might be regulated just as well (or even moreefficiently) by social norms; and ADR provides a good example of theresolution of social conflicts outside the legal system.




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2.2.2. Function

The specific societal function of law, therefore, must be found on a differentlevel. In fact, when we turn to its relation to society as a whole, law fulfils

only one function: the stabilization of normative expectations, i.e., expec-tations that are upheld even in case of disappointment. This function iswhat, on the one hand, distinguishes law from every other functionalsubsystem and, on the other hand, determines the way in which legalcommunications are processed. Because [i]f law has the function ofstabilizing normative expectations in the face of an unorganised growthof normative expectations [. . .], this can be achieved only by a selectionof those expectations that are worth protecting (Luhmann 2004, 152). Weshall thus take a brief look at the mechanisms that provide for this selection.

From a constructivist perspective, the process in which law decideswhich norms to protect is necessarily a recursive one:

Whether a norm is a legal one or not can only be ascertained through observationof the recursive network that produces legal norms; that is, through an observationof the context of production which becomes a differentiated system through itsoperations. (Ibid.)

The counterfactual stability of normative expectations is thus guaranteed

by the operative closure of law in a legal system, i.e., the network of legalcommunications perpetually referencing to other legal communications(Luhmann 2004, 106ff.). This implies a new understanding of the rela-tionship between structure and operation (process) which can be sub-sumed under the concept of autopoiesis: The legal system produces and atthe same time is a product of legal communications. This, in turn, pre-supposes the legal systems capability of second-order observation becausethe autopoietic legal system [i]n order to specify its operations as legalones, [. . .] has to ascertain what it has done so far (Luhmann 2004, 90).

At this point it establishes its very own logics of remembering andforgetting providing that those norms that are referred to in an institu-tionalised linkage of episodes (Teubner 1997, 16) are condensed andconfirmed, while others just fall into oblivion (Calliess 2002, 196).

In common law systems this institutionalised memory is guaranteed bythe reliance on judicial precedents and the doctrine of stare decisis. Thedoctrine acts as the invisible hand of the system by making sure thatadjudication orients itself along the lines of a few leading cases that act aspoints of reference for later decisions (Shapiro 1972, 133). What is law and

what is not is then defined by the legal system itself: All law is valid bydecision only. At the same time, the selective reference to earlier judge-ments evokes the impression that each decision is but the product of earlierdecisions (Calliess 2002). The social function of law is thus guaranteedthrough the self-referentiality of legal communications. By observing its




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own operations, the legal system selects those expectations that can benormatively upheld, while at the same time making sure that it isnormatively expected to expect normatively (Luhmann 2004, 1578).

This insight provides us with the basic elements of a terminologicalframework for analysing the respective role of law and social norms in thecontext of global governance. The performances of law, we can conclude,might be equally fulfilled outside the legal system, which explains the riseof non-legal forms of regulation and dispute resolution on the global scale.The function of law, however, defined as the stabilisation of normativeexpectations, can only be fulfilled within the self-referential structures of alegal system. This will help us analyse whether and to what extent globalgovernance regimes might develop into legal systems.

3. Global Governance: An Evolutionary Perspective

After having identified the function of stabilising normative expectation asthe crossing line between legal and non-legal forms of regulation, we canlay out the conditions under which global governance regimes might crossthis line. This evolutionary process can be described against the back-ground of a competition in terms of performance and function betweendifferent forms of regulation.

3.1. Crossing the Line: From Soft Law to Hard Code

As we have seen, the function of law is fulfilled where a legal systemestablishes selective mechanisms for the temporal stabilisation of norma-tive expectations by observing its own operations. These mechanisms ofremembering and forgetting, however, are only triggered where normativeexpectations are contested, where there are conflicts to be decided. Becauseonly then there is occasion for a communication in terms of legal/illegal:

The departure point for the evolution of law is the initially barely markeddistinction between uncontested and contested cases of disappointment. Only ifconflicts can be verbalized [. . .] can a second-order observation arise, because onlythen is one obliged to decide who is in a legal position and who is in an illegalposition. (Luhmann 2004, 246)

The first enabling condition for the evolution of a legal system can thus befound in the verbalisation of conflicts. We can define this verbalisation as

the communication of a social conflict in terms of legal/illegal and vis--visa third party. Any governance mechanism can fulfil this condition where itprovides for a third-party dispute-resolution procedure that is legalisedin the sense that it effectively suppresses ad hoc and ad hominem arguments(ibid., 248).




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The second enabling condition for the evolution of a legal system canbe found in the mechanisms of remembering and forgetting we havedescribed above. A second-order observation can only arise where there are

points of reference for the interlinkage and mutual reference of legalcommunications. These points of reference are most often constituted byprecedentsor, less likely, a doctrinal elaboration of legal principles (Hart1997, 77). In any case, these points of reference can only be reflected in legalcommunications if they are accessible for later communications, i.e., if theyare made public. Therefore, the second condition is fulfilled where legalcommunications are published, most likely in the form of judicial deci-sions, but also in the form of textualised norms.

A global governance regime, we can thus conclude, might develop into

a legal system at least under the conditions that (a) it provides for animpartial dispute resolution procedure in the above-mentioned sense andthat (b) past decisions are published (Calliess 2002, 43).

3.2. Performance vs. Function

At which point this line is crossed, however, is also determined by theinterdependence of laws performances and its function. As we have seen,the decision of contentious cases is crucial to the development of a

governance regime into a legal system. Any such mechanism, however,will only be able to attract cases if it is regarded by potential claimants asperforming satisfactorily in terms of dispute resolution andpossiblybehavioural control. Performance with regard to conflict-resolution can bemeasured against a number of different factors: accessibility (standing),speed (rules of procedure), affordability, andmost importantlyattractive remedies (Calliess 2005).

Yet while enhancing its performance these factors might at the same timeimpair the regimes function as a legal system. There is a perpetual conflict

between the capability to attract conflicts and the capability to resolve theseconflicts in a way that contributes to the stabilisation of normative expec-tations with regard to society as a whole. From the perspective of legaldiscourse, this conflict is described in the categories of fairness vs. legalcertainty. It is well illustrated by a brief look at legal history that showshow and with which consequences dispute resolution is performed insideand outside the legal system.

At various stages of their evolution, European legal orders have been inneed of development aid from outside the law (Calliess 2005, 46). In

classical Roman jurisprudence, aequitas as a maxim in adjudication helpedovercome the formalism of the ius civile by providing for principles ofconflict-resolution that were explicitly not based in positive law (Wieacker2006, 8990). In praetorian judicature this led to a parallel development ofthe traditional ius civile and an emerging ius honorarium as jurist-made law




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(Waldstein and Rainer 2005, 121, 136). And, many centuries later yet in asimilar way, Equity as a supplementary body of rules began developing inthe fifteenth century alongside the English common law. It was mainly the

lack of attractive remedies in common law (providing for damages only) aswell as the need for more flexible forms of action that led to the rise of thissupplementary system of adjudicationin other words: It was its ability toattract and verbalise conflicts (Hanbury and Martin 1993, 445).

But after having been administered by the Court of Chancery until the endof the nineteenth century, Equity was re-integrated into the common law bythe 187375 Judicature Actsjust as the rapid development of aequitas inRoman law seems to have come to a halt around the third century:

Each of them tended, and all such systems tend, to exactly the same state in whichthe old common law was when Equity first interfered with it. A time always comesat which the moral principles originally adopted have been carried out to all theirlegitimate consequences, and then the system founded on them becomes as rigid,as unexpansive, and as liable to fall behind moral progress as the sternest code ofrules avowedly legal. (Maine 1861, 6869)

The tension between (single case) aequitas/Equity as deciding each case onits own merits and (systemic) justice as treating like cases alike, it seems,has in both instances been gradually resolved in favour of an all-

encompassing legalisation of formerly non-legal adjudication principles.Having started off as alternatives to the legal system in terms of perfor-mance, it seems that both aequitas and Equity became less and less capableof outperforming the legal system as they also took on its stabilisingfunction. While it is obvious that these insights cannot easily be translatedto todays regulatory mechanisms, this shows very well which factorsfairness and case-orientation on the one hand, legal certainty on the otherhanddetermine the oscillation of conflict-resolution between legal andnon-legal forms of governance.

3.3. Global Governance: Three Examples

In order to examine whether we can describe similar mechanisms in thecontext of global governance, we shall now very briefly present threeexamples of regulatory regimes on the global level. All these regimes areestablished and maintained by private actors. Although, to a certain extent,they necessarily operate in the shadow of the law, they can be seen asincreasingly autonomous forms of regulation beyond the nation-state.

3.3.1. Lex Mercatoria

In contemporary jurisprudence the most-discussed example of a globalregulatory regime is definitely that of lex mercatoria or the New Merchant




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Law. Yet even its existence is subject to a heated discussion (Teubner 1997,7). While some authors try to talk this body of norms into existence andeven speak of a creeping codification (Berger 1999), others see nothing

more than a phantom conjured up by a few speculative Sorbonneprofessors (Teubner 1997, 12). Substantially, lex mercatoria claims to rely onthe rules and usages of international trademanship, thereby alluding to themedieval law merchant (Cordes 2003). Hard evidence for the reality of anemerging New Merchant Law, however, is only to be found in thereferences made to it in arbitral awards (Calliess 2002, 1934). In fact, lexmercatoria is best categorised as a certain procedural setting in the contextof ADR mechanisms and as the adjudication of conflicts according togeneral fairness-oriented principles.

3.3.2. ICANN UDRP

Our second example relates to the context of internet regulation, where thearbitration of disputes is provided for by the Uniform Domain NameDispute Resolution Policy (UDRP) of the Internet Corporation for AssignedNames and Numbers (ICANN). ICANN is a private non-profit organisa-tion, responsible inter alia for the management of the domain name system,i.e., the global addressing system of the Internet. In 1999, it adopted theUDRP as a quick, efficient, and cost-effective on-line dispute resolution

procedure for domain name disputes (Calliess 2002). Its primary goal isto deal with the practice of cybersquatting, i.e., the pre-emptive registrationof trademarks by third parties as domain names. All registration serviceproviders accredited with ICANN as registrars of the generic top-leveldomains .com, .org, etc., have incorporated by reference the UDRP inthe registration agreements with their customers, who are the individualdomain name holders.

3.3.3. CSR

Our third example is constituted by a governance mechanism that is muchdiscussed in both corporate and (public) international law: CorporateSocial Responsibility (CSR). CSR primarily refers to voluntarily adoptedcodes of conduct laying down the social and environmental policies oftransnational corporations (TNCs). Thus, it basically works as governanceby self-commitment: It is not about reciprocal obligations but about theunilateral setting of standards in the fields of human rights, anti-corruption, labour conditions, etc. Increasingly, TNCs also co-operate to

adopt common standards for CSR. These collective efforts are reflected ininitiatives like the OECD Guidelines for Multinational Enterprises,3 the

3 http://www.oecd.org/dataoecd/56/36/1922428.pdf.


http://www.oecd.org/dataoecd/56/36/1922428.pdfhttp://www.oecd.org/dataoecd/56/36/1922428.pdf


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UN-sponsored Global Compact,4 and, most recently, the UN DraftNorms on the Responsibilities of Transnational Corporations and otherBusiness Enterprises with Regard to Human Rights.5 In a more compre-

hensive definition, CSR can be said to include all actions which reduce theextent of externalized costs or avoid distributional conflicts (Heal 2004).From a governance perspective, however, we will focus on CSR as a meansof corporate self-regulation.

3.4. Performance Competition

With a view to their performance, global governance regimes compete withdomestic legal systems and international law in various regards. They arepredominantly used as a way of resolving disputes outside domestic legalsystems such as in the case of ADR mechanisms, but they can also step inthe place of international law by regulating the behaviour of transnationalactors the way CSR does.

The performance of lex mercatoria, for example, is characterised by itsembeddedness into ADR mechanisms. The reference to lex mercatoria inarbitral proceedings provides for the fairness-oriented and case-specificresolution of conflicts between commercial actors, thus providing disputeresolution services to the economic system. Accordingly, it stands in aself-proclaimed competition to domestic legal systems in the field ofdispute-resolution. This performance competition, however, takes place onthe level of procedures rather than with regard to substantive norms. Thebasic idea of international commercial arbitration is that the parties to across-border contract agree to submit their disputes for decision to aprivately elected tribunal. An arbitration clause in their contract allowsparties to effectively opt out of domestic legal systems.6 The possibilities toset aside an arbitral award at the seat of arbitration are rather limited(UNCITRAL Model Law on International Commercial Arbitration, Art. 34)as is the possibility of national courts to refuse a later recognition/enforcement of the award (New York Convention on the Recognition andEnforcement of Foreign Arbitral Awards, Art. 5). The resulting advantagesof private arbitration as compared to domestic legal systems are manifold.First, arbitration is cheaper, especially in high value disputes. Second, it isalso quicker as there are no stages of appeal. Third, arbitration can providefor a perceivably neutral venue in the settlement of international disputes,

4 http://www.unglobalcompact.org.5 http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFrame/

64155e7e8141b38cc1256d63002c55e8?Opendocument6 International Chamber of Commerce, Standard arbitration clause, http://www.iccwbo.org/court/english/arbitration/model_clause.asp: All disputes arising out of or in connectionwith the present contract shall be finally settled under the Rules of Arbitration of theInternational Chamber of Commerce by one or more arbitrators appointed in accordance withthe said Rules.


http://www.unglobalcompact.org/http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFramehttp://www.iccwbo.org/http://www.iccwbo.org/http://www.unhchr.ch/Huridocda/Huridoca.nsf/TestFramehttp://www.unglobalcompact.org/


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whereas under traditional conflict of laws, the forum would usually be oneof the parties country of domicile. Fourth, the arbitrators can be chosenaccording to the parties preferences. Last but not least, arbitral proceed-

ings are non-public. In all of these aspects, lex mercatoria-based ADRmechanisms effectively outperform domestic legal systems.The performance of ICANN UDRP can be described in very similar

terms. What UDRP basically provides for is an adversarial court-likeprocedure before an accredited arbitral panel, while the applicable law isrestricted to a single substantive norm (among several procedural provi-sions): the UDRP definition of cybersquatting. The performance of ICANNUDRP, thus, is very much comparable to that of other ADR mechanisms inthat it provides dispute-resolution services to the business community as

well as to private individuals. The most notable difference as compared toother ADR mechanisms is to be seen in the fact that with regard to its scopeICANN UDRP has a de facto monopoly: Due to the centralised structureof the domain name system, the transfer and deletion of domain namessimply cannot be performed by any competitor.

It is considerably more difficult to discern the specific performance withregard to our third example. As CSR guidelines are not directly legallybinding, they are not intended to be used in the adjudication of conflicts(Dilling, Herberg, and Winter 2008). They rather serve as a means for

building up social pressure:

Even if transnational corporations and other business enterprises are not legallybound by the [UN Draft] Norms, there will be considerable pressure to complywith the Norms, since individual companies will be exposed to world publicopiniontheir customersin the respected forum of the UN. (Hillemanns 2003; seealso Weissbrodt and Kruger 2003)

The performance of CSR thus does not lie in providing dispute resolutionto businesses or consumers but in a benefit to the global economic system:

the regulation of (corporate) behaviour which levels the playing field foreconomic actors in terms of production standards by internalizing externaleffects of corporate behavior. The example illustrates very well how, froman economic perspective, corporations can act as private norm entrepre-neurs by using corporate codes of conduct for signaling their reliabilitytowards other economic actors, i.e., their consumers. Again, this is aperformance that cannot be achieved by domestic legal systems as theirreach is territorially limited. Nor can this be achieved by (public) interna-tional law as TNCs commonly are not regarded as having international

legal personality (Brownlie 2003, 65f.).From a performance perspective, however, it is impossible to characterisegovernance regimes as being based on either law or social norms becausethe performances we have outlined abovedispute resolution as well asbehavioural controlcan be achieved by both legal and non-legal means.




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3.5. Functional Competition

The interesting question, then, is whether out of this mere performancecompetition there might also evolve a functional competition with domes-

tic legal systems and international law. Both ICANN UDRP and arbitralpractice referring to lex mercatoria are conceived of as Alternative DisputeResolution, as a way of consciously settling conflicts outside the law. AndCSR characterises itself as mere soft law, thus also locating itself outsidethe boundaries of legal discourse. Yet, as our historical examples show, theborder lines of legal discourse are all but impermeable. Whether they arecrossed or not depends, as we have seen, on the two basic preconditionsthat conflicts are verbalised in terms of legal communications vis--vis athird party and that these communications are published to serve as a

starting point for second-order observation in other legal communications.With regard to the verbalisation of conflicts, transnational legal systems

thus must provide for a procedure of third-party conflict-resolution(Calliess 2002, 53). Such a procedure is easy to make out with regard totransnational commercial arbitration as well as the ICANN UDRP. Theyboth institute arbitral panels assuming the role of the alter ego, thegeneralised other, in the settlement of a dispute (ibid., 195). With regard to(self-)regulation by CSR standards, however, there isso farno court orother forum that provides for third-party dispute resolution. But this might

rapidly change if, e.g., domestic courts were to rely on collective codes ofconduct when concretising (domestic or international) law standardsregarding corporate behavior. Against the background of a rising tide ofhuman rights litigation not only in United States courts,7 it does not seemimpossible that domestic courts might rely on CSR standards when con-cretising human rights standards in customary international law8 orgeneral clauses in domestic private law.9

In addition, new dispute settlement procedures might be created in thecontext of CSR. The OECD Guidelines for Multinational Enterprises, for

instance, are supported by a unique implementation mechanism: Throughtheir specific instances facility, National Contact Points (NCP), govern-

7 For examples of this kind of litigation, see especially Filrtiga v. Pea-Irala, 630 F.2d 876 (2dCir. 1980), accepting civil damages actions for human rights violations under the 1789 AlienTort Claims Act (ATCA) and Sosa v. Alvarez-Machain, 124 S. Ct. 2739 (2004), arguably implyingthat corporations are legally capable of violating customary international law and may besubject to jurisdiction under the ATCA (cf. generally Shaw 2002).8 At least to the extent that, e.g., the UN Draft Norms on the Responsibilities of TransnationalCorporations and other Business Enterprises with regard to Human Rights can be considered

a reflection of already existing customary international law.9 As it is already practiced for international treaties; see, e.g., AG Tauberbischofsheim, NeueJuristische WochenschriftRechtsprechungsreport (1992), holding that like the fundamentalrights guaranteed by the Basic law, the rights embodied in the European Convention onHuman Rights affect private law relations by virtue of the general clauses by the Germanprivate law.




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ment agencies responsible for the guidelines, offer to help parties resolvedisputes. Since 2000 some 130 specific instances have been brought to theNCPs attention. Most of them concerned the employment and industrial

relations chapter of the guidelines and were related to business operationsin developing countries.10 The mediation and conciliation of these casesconstitutes another instance of performance competition between law andADR mechanismsalthough the powers of the NCOs are rather limitedand do not enable them to issue binding decisions.

With regard to the second functional prerequisite for the emergence of alegal system, we have to examine whether global governance regimes arecapable of selecting the normative expectations that can be normativelyexpected. It is only through an institutionalised logic of remembering and

forgetting that this can be achieved. Once a dispute resolution mechanismcan observe, and refer to, its own decisions it guarantees legal certainty inits most basic form: by treating like cases alike. This goal is achieved by legalreasoning which describes the stabilisation of legal norms as a problem ofconsistency (Luhmann 2004, 257f.): Every decision has to expressly integrateitself into the continuum of other decisions. It can be observed that arbitraltribunals, as soon as they publish their decisions, engage in this kind ofdiscourse. This is most obvious with regard to ICANN UDRP tribunals:Even though the UDRP Rules do not provide for the binding nature of

precedent, almost every panel decision refers to earlier cases employingthe well known common law techniques of analogical reasoning. Thisis obviously greatly facilitated by the fact that all decisions are web-published.11 As a random example, we might take the following reasoningof a UDRP Panel in the mcdonaldslovesjesus.com12 case:

The Panel notes that in the principal case relied upon by Respondent in support ofits noncommercial use argument (Bridgestone Firestone, Inc. et al. v. Myers, No.D2000-0190, WIPO July 6, 2000), the domain name registrant was a formeremployee of Bridgestone-Firestone and developed a website under the domain

name bridgestone-firestone.net in order to offer constructive criticism of hisformer employer. The instant case is distinguishable in that, as noted above, Respon-dent is not engaged in any criticism of Complainant. (emphasis added)

But the evolution of second-order observation mechanisms is even moreimportant with regard to lex mercatoria whose impossible reality ismeasurable [only] by the number of references made to it (Calliess 2002,

10 OECD, The Contribution of the OECD Guidelines for Multinational Enterprises to

Managing Globalisation, Paper prepared for distribution at the meeting of G8 Labour andEmployment Ministers, May 68, 2007, Dresden, Germany, 2007, http://www.oecd.org/dataoecd/5/34/38543990.pdf.11 http://www.icann.org/udrp/udrp.htm.12 McDonalds Corporation v. The Holy See, Claim Number: FA0304000155458, http://www.arbforum.com/domains/decisions/155458.htm.


http://www.oecd.org/http://www.icann.org/udrp/udrp.htmhttp://www/http://www/http://www.icann.org/udrp/udrp.htmhttp://www.oecd.org/


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201). The legal existence oflex mercatoria principles, this means, depends ontheir being referred to in a choice of law clause by the parties to acommercial contract and subsequently adjudicated by an independent

tribunal. Adjudication can in this context be regarded as performativespeech acts (Dunn 2003), that literally talk into existence (Calliess 2002,207) lex mercatoria. These speech acts, however, gain their performativequality only by the linkage of episodes (Dworkin 1982; Yoshino 1994)that especially the doctrine of precedent provides for. But so far, there isonly an inchoate practice of precedent and stare decisis in commercialarbitration which, together with the lack of any institutionalised courthierarchy (Teubner 1997, 18),13 at least slows down the development of anautonomous legal system of lex mercatoria.

We can thus conclude that with regard to the ICANN UDRP and, to alesser extent, lex mercatoria the enabling conditions for the evolution of alegal system are met. Arbitral tribunals thus enter into a functionalcompetition with domestic courts. Other private or hybrid governanceregimes such as CSR standards largely lack these features and it seems stillan open question whether they will succeed in initiating the communica-tive process of generating legal norms. A comparison of the three regimeswe have described is given in the table below.

4. Conclusion: Evolutionary Anomaly or Survival of the Hybrid?

The preceding paragraphs have outlined an interdisciplinary approach tolaw and globalization that is both open to the social sciences and compat-ible with normative jurisprudential approaches. The focus on functionalanalysis offers a conceptual framework for explaining the generation ofsocial norms and governance structures outside the nation-state legalsystem. By complementing this framework with insights from the theory ofautopoietic social systems, such governance structures can also be analyzed

as following their own evolutionary logics and thus developing genuinelynormative elements.

13 The lack of institutional hierarchy might possibly be replaced by different forms ofreputational hierarchy, though.

Table 1

Performance Function

Behavioural control /dispute resolution

Verbalisationof conflicts

Second-orderobservation mechanisms

CSR Yes Partial Nolex mercatoria Yes Yes PartialICANN UDRP Yes Yes Yes




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In connection with the examples we have outlined above, this interdis-ciplinary perspective allows us to make some preliminary observations onthe relation of law and social norms on the global level. Specifically, the

evolution of legal systems in the ambit of global governance can bedescribed as a permanent reconfiguration of the conflict between theirspecific performance and their function with regard to society as a whole.Where legal systems fail to perform satisfactorily and escape into legalformalism, alternative ways of dispute resolution will take their place justlike the transaction cost-based models of economic theory suggest. Whilemany ADR solutions do not yet fulfil the function of guaranteeing legalcertainty and thus stabilising normative expectations, they might stilldevelop towards formalised legal systems. The latter phenomenon is well

illustrated by the examples of lex mercatoria and ICANN UDRP.Looking at this oscillation of global governance mechanisms betweenlaw and social norms, the preceding paragraphs have also hinted at apossible answer to the more general question whether the central role oflaw in European societies should be regarded as an evolutionaryanomaly or whether law in the ambit of global governance might survivein new hybrid forms. Based on our brief tour dhorizon of various formsof private and hybrid ordering on the global scale, there are basically twoconcluding statements that can be made on this matter. On the one hand,

it is obvious that state legal systems are challenged by non-legal forms ofregulation in an increasingly tough competition, where they are oftenoutperformed by ADR and soft law mechanisms. CSR provides a goodexample of how (corporate) behaviour may be regulated by social norms,its violations being sanctioned predominantly by public opinion. On theother hand, a systems theory-informed approach to law and social normsalso shows how transnational regulatory mechanisms can be legalisedthrough the establishment of an institutional and procedural setting thatallows for the autopoietic generation of legal communications. This trend

is evidenced by the contemporary developments in lex mercatoria as well asunder the ICANN UDRP.

(for Gralf-Peter Calliess)University of Bremen

Law FacultyD-28353 Bremen

E-mail: [email protected]

(for Moritz Renner)

University of BremenCollaborative Research Center 597P.O. Box 33 04 40

D-28334 BremenE-mail: [email protected]


mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Between Law and Social Norms, Evolution of Global Governance